USD forecast: Bullish rally fades as 92% rate cut bets pressure DXY at key support

Bullish setup reversed by labor market shock

The U.S. Dollar Index (DXY) delivered a classic bullish breakout continuation as July concludes the trading month, reclaiming multiple key psychological levels, 99.50 up-to 100+, confirming the move we outlined in the previous forecast.

Before:

After:

However, the move quickly unraveled after the July NFP report, which showed only 73,000 jobs added, far below expectations. This triggered a dramatic shift in monetary policy expectations, with markets now pricing in a 92.2% chance of a Fed rate cut in September—the highest level all year.

What’s moving the Dollar

NFP miss triggers risk repricing

• Only 73,000 jobs added in July vs. 180K expected.
• Prior months saw a combined 258,000 revision downward.
• Fed rate cut probability for September now >90%, according to swaps markets.

Institutional shake-up adds to Dollar fragility

• President Trump fired the BLS Chief, calling job data “deep state sabotage”.
• Fed Governor Adriana Kugler resigns, triggering fears of political interference.

Tariff pressure reemerges

• Broad-based tariff package against 66 countries went into effect August 7.
• This move increased risk-aversion and exposed USD to geopolitical backlash.

Technical outlook: DXY faces make-or-break at key fair value gap

The US Dollar Index (DXY) is now coiling within a bearish consolidation, as dollar consolidates below equilibrium of the ****range, ****after rejecting sharply from the 100.00 psychological level, and pulling back into a critical zone between 98.60 – 99.20, where both a Daily and 4H Fair Value Gap (FVG) exists just below those levels.

This region has now become a decision point: whether price reclaims the red FVG and re-establishes bullish structure—or distributes lower into the larger liquidity pocket below 97.50.

Bullish scenario: Reclaim of FVG and continuation

• DXY reclaims the red FVG zone (98.90–99.20) and prints a higher low.
• This would suggest accumulation rather than distribution and open upside targets:
• • Target 1: 99.50.
  • Target 2: 100.00-100.50 (previous high and psychological level).

For this to materialize, incoming CPI data or Fed officials must push back against current dovish sentiment—or other major currencies (EUR, JPY) must weaken more significantly.

Bearish scenario: Distribution + breakdown from FVG

• Price remains capped within the current consolidation and fails to close above 99.20.
• A clean rejection from the upper bound of the FVG (99.20) could initiate a distribution phase.
• If breakdown occurs:
• • Target 1: 98.00 (liquidity zone and minor support).
  • Target 2: 97.00–96.50 (major structural support + resting liquidity).

This scenario aligns with the 92.2% September rate cut expectations, ongoing political instability, and post-NFP bearish pressure.